| Organisations that run company cars need to | | | | E 166-185 £170 |
| understand the cost implications of these changes, | | | | F** Over 185 £210 |
| which are likely to be considerable in the case of | | | | G Over 225 £400full cost of contract hire rentals |
| capital allowances and prepare accordingly. | | | | against tax in respect of cars under 160g/km CO2, |
| 1. Reform of capital allowances and leasing | | | | irrespective of the car’s price. At present, only |
| disallowances | | | | rentals on cars costing less than £12,000 are fully |
| Next April’s reform of corporate tax reliefs for | | | | deductible. |
| company cars is the most profound change in fleet | | | | For cars above 160g/km CO2, rentals will be |
| taxation since the Government linked Benefit-in-Kind | | | | deductible except for a flat portion of 15% of the |
| tax to CO2 emissions in 2001. The new capital | | | | rental, which will be disallowed and therefore remain |
| allowances system will allow businesses to: | | | | taxed. Compared with the current sliding scale of |
| – claim 100% of the value of cars emitting 110g/km | | | | leasing disallowances for cars over £12,000, the new |
| CO2 or less in the first year of ownership. | | | | system will make it cheaper than at present to lease |
| – place company cars emitting between 111g/km | | | | any car costing more than £17,430 regardless of its |
| and 160g/km of CO2 in a pool where they can deduct | | | | CO2 rating. |
| 20% of each vehicle’s depreciating value each | | | | How will the corporation tax changes affect my fleet? |
| year from taxable profits. | | | | In general, cars become more attractive to lease than |
| – set 10% of the depreciating value | | | | to buy under the new rules, due to the cost benefits |
| of vehicles that emit 161g/km CO2 or more against | | | | offered by the new Lease Rental Restriction. In |
| their profits each year. | | | | particular, cars that cost more than £12,000 and emit |
| Cars sub 160g/km CO2 pool | | | | less than 160g/km of CO2 will be cheaper to acquire |
| Unlike the current system for writing-down the value of | | | | on Contract Hire from next April than they are at |
| company vehicles, cars delivered after 1st April 2009 | | | | present. However, there is no “one size fits all” |
| will remain in their CO2 pool after they are disposed-of. | | | | response to this tax reform. Every car policy will need |
| For a typical car in the sub 160g/km CO2 pool, around | | | | to take account of the interactions between prices, |
| 20% of its original cost will remain in the pool after | | | | depreciation, CO2 emissions, fuel costs, VED, |
| disposal proceeds are removed, and it will take around | | | | corporation taxes, National Insurance, your |
| 11 years to claim 90% of this balance – or | | | | business’s cost of funds and other important |
| “tail” – against tax. | | | | factors. Such an analysis will allow you to formulate |
| Cars over 160g/km CO2 pool | | | | the most advantageous policy based on a full and |
| For cars in the over-160g/km CO2 pool, which tend to | | | | carefully considered analysis of the crucial variables. |
| realise proportionally less money on disposal, the tail will | | | | 2. Vehicle Excise Duty (VED) |
| be larger and therefore take longer to claim against | | | | The pre-Budget report confirms the introduction of |
| tax – typically more than 20 years to claim 90% of | | | | new VED bands during 2009. However, it is worth |
| the balance. The difference in the level of writing-down | | | | noting that the Government envisages no significant |
| allowance and the length of the respective tax relief | | | | rate changes until 2010, and even then, no driver in any |
| tails will create an increase in car ownership costs at | | | | given band shall pay more than £30 extra in that |
| the 160g/km CO2 threshold. At the same time, the | | | | year. |
| Treasury will also change the system of leasing | | | | Key dates: |
| disallowances, which will allow businesses generally to | | | | – From April 2009, six new bands of VED will be |
| deduct more of their car leasing costs from taxable | | | | introduced, taking the total to 13 bands. However, VED |
| profits. The current Expensive Car Leasing | | | | rates will not increase by more than £5 for any |
| Disallowance will be abolished and replaced by a | | | | vehicle during this period. |
| Lease Rental Restriction, which will allow businesses to | | | | – From April 2010, in order to create the desired |
| set the | | | | environmental incentive, the Government will start |
| Key changes to Vehicle Excise Duty Bandings and | | | | to,separate out the 13 differential banding rates. As a |
| Rates | | | | result, cars below 150g/km CO2 will see a real terms |
| Cars registered between 1st March 2001 and 23rd | | | | VED cut of up to £30. Cars up to 175g/km CO2 will |
| March 2006, emitting more than 225 g/km CO2 will be | | | | see no real terms increase and cars of 176g/km CO2 |
| moved into new band K in 2009 and remain there for | | | | and above will see an increase of between £20 to |
| the duration of 2010. This will allow these drivers to | | | | £30. |
| continue to enjoy exemption from the top rate of | | | | – Also from April 2010, to "provide a stronger signal |
| VED. | | | | to consumers at the point of purchase,” a |
| Current Vehicle Excise Duty rates for cars registers | | | | differential first-year rate for new cars will be |
| on or after 1st March 2001 | | | | introduced (as announced in the 2008 budget). The |
| VED band CO2 emissions (g/km) 2008/09* | | | | more polluting cars will see their duty increased by a |
| A Up to 100 £0 | | | | maximum of £30, (not £90 as originally planned). |
| B 101-120 £35 | | | | While the duty levied upon less polluting cars will stay, in |
| C 121-150 £120 | | | | most cases, the same or in some instances be |
| D 151-165 £145 | | | | reduced. |